• Monday, December 04, 2023
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The CFO as a strategist in the COVID-19 era

Cfo, Chief Financial Officer, Text On White Paper On Light Background

When news of a ‘novel virus’ began circulating in December 2019, it was almost impossible to predict the unprecedented impact the disease would have on individuals, businesses and economies across the globe.

As the highly transmissible virus travelled quickly from one country to another, governments scrambled to control the contagion, imposing lockdowns and implementing public health measures to protect their people and economies. However, the scale of the problem has proven daunting, even for the most competent of governments. With the current spike in infection rates, driven by the new Delta variant, these problems persist.

For many businesses, the extensive lockdowns, reduced spending power and the resulting drop in demand caused massive financial losses. Across the world, businesses were hit so severely that a number of economic sectors like aviation, insurance, tourism, banking, etc., had their shareholder returns suffer a drastic decline from which they are yet to recover.

Globally, various companies like Latam Airlines, Hertz and Frontier Communications, to mention a few, filed for bankruptcy despite their asset sizes of $21.1bn, $25.8bn and $17.4bn, respectively.

To date, many sub-sectors of the global economy have yet to recover to pre-COVID levels, revealing the toll the virus has had, not just on human life, but also on national and global economies.

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A report published by the United Nations Conference on Trade and Development (UNCTAD) in June 2021, projects that “the coronavirus pandemic could cause a loss of more than $4 trillion to the global GDP for the years 2020 and 2021.”

Chief Financial Officers (CFOs) and other C-Suite Executives in Nigeria, like their global counterparts, had to innovate and pivot quickly to deal with the rapidly evolving crisis, and keep their organisations afloat. Nevertheless, some companies have been able to weather the storm better than others due to their management’s proactive efforts in the pre-COVID era, and the swiftness with which contingency plans, where available, were implemented.

Union Bank, for example, was one of the first organisations in Nigeria to implement remote work for its employees, even before the government-imposed lockdowns. At the height of the pandemic in 2020, over 70% of the Bank’s workforce was working remotely. This was possible due to prior strategic investments in digital assets that enabled the swift transition without compromising service delivery.

The role of the CFO as a strategist

According to a recent PwC report, CFOs are most concerned about the financial impact of the pandemic on their businesses – with global recession, workforce productivity and consumer confidence stated as other top concerns. Clearly, for today’s Chief Financial Officer whose primary role is to direct a company’s financial goals, objectives and budgets, the uncertainty brought on by the pandemic is a growing concern.

As businesses continue to adapt to these uncertainties, we have seen critical changes on the business landscape. Within the banking sector and the capital markets specifically, we continue to see revision of operating models to accelerate digital transformation. As the shift continues, there will also be more opportunities for banks to support industry restructuring. In addition, we also continue to see stronger regulatory oversight on capital and liquidity standards plus risk management practices. Finally, supply chain disruptions and backlogs will keep on impacting operational efficiencies.

Chief Financial Officers (CFOs) and other C-Suite Executives in Nigeria, like their global counterparts, had to innovate and pivot quickly to deal with the rapidly evolving crisis, and keep their organisations afloat.

Accelerating contingency planning to bounce back stronger

Faced with massive uncertainty, CFOs have been reminded of the importance of building a robust contingency plan to ensure speedy business recovery and continued profitability. But how then do CFOs accelerate contingency planning in an uncertain era?

First, they must conduct more robust scenario analyses – reviewing the economy, exchange rates, oil prices etc., to better predict multiple future outcomes and best paths of action to follow. It is also important to ensure accelerated decision-making processes to ensure quick progression from ideation to implementation. CFOs will also need to improve strictness of performance reporting to boost transparency and identification of potential problems, and lastly, reassess information technology systems to ensure relevance, flexibility, and scalability.

Navigating uncertainty: Strategic capital allocation and balance sheet optimisation

In addition to planning for contingencies, CFOs can safely steer their companies through troubled waters by well-implemented strategic capital allocation and balance sheet optimisation. More than ever before, it is imperative that capital goes where it can be best utilised.

According to a 2020 McKinsey & Company article, as CFOs focus on balance sheet optimisation, there are five main levers to consider, some of which are already familiar concepts to CFOs today.

First, identifying the best capital structure will help to minimise the average cost of capital. Next is the need for management of strategic liquidity and calculating how much liquidity is required to boost productivity and resilience.

The third is risk-adjusted capital allocation and comprehensive and adaptable risk management evaluation criteria. In addition, there is the need for effective contingency planning and finally, effective foreign exchange and interest rate management.

Capital allocation is an essential tool for navigating the uncertainties businesses are faced with today. Knowing how to prioritise where and when to allocate the company’s capital is an important skill every CFO must have in the fast-changing and unpredictable nature of the current climate.

To maximise the company’s capital-output, it’s important that hard data and performance indices are tracked closely to drive the decision-making process. The business strategy should be flexible enough to allow for capital reallocation to more viable projects, if and when the need arises. You can drive business agility by freeing up capital and prioritising cash flow. This will empower the company to move quickly to new opportunities.

Leveraging technology to enhance operational efficiency

Technology is another pillar needed to enhance operational efficiency today. During the lockdowns that occurred in early to mid-2020, the effectiveness of digital and technology systems like the Robotic Automation Process (RAP) deployed by Union Bank helped to minimise the disruption of banking services to customers. Proactive investments and establishment of a Data and Analytics Office also helped ensure that Union Bank was able to still meet the needs of its customers without suffering severe downtimes.

CFOs must be bold in adopting and adapting technology innovations like cloud-based storage, data analytics, RPA, etc., to drive efficiency and operational resilience.

Technology adoption by businesses is targeted at driving value creation, but it is important not to think of technology as the silver bullet for every challenge. The adoption of new technology must be accompanied by optimisation of processes and procedures for greater efficiency. Also, there is a level of change management required for effective implementation of new technology. All stakeholders need to be effectively managed in the execution process.

In conclusion, adequate contingency planning, backed by prudent capital allocation and effective use and deployment of technology, is the way to go in helping businesses navigate through unexpected occurrences and fallouts like that which is happening with the COVID-19 pandemic.

In the end, the company’s survival has never been more dependent on the proactive decisions a CFO makes than it is now.

Albert Einstein famously said, “in the midst of every crisis lies great opportunity.” This is a challenge and a clarion call to every CFO in today’s uncertain world.

Mbulu is the Chief Financial Officer, Union Bank of Nigeria